What Kind of Business are You Running?

What Kind of Business are You Running?

by Art Locke

If you’re in business for yourself, whether you employ people or run a home-based business solo, it’s important to answer the question, “What kind of business are you?”

This isn’t a question about the industry you’re in, or your legal entity. It’s about your fundamental purpose in running the business and what you and your family hope to get out of it.

There are three kinds of businesses, and every for profit business fits into one of these three categories. The first kind is a “life-style” business, meaning its principal purpose is to fund your lifestyle, from paying bills to helping you afford college tuition, vacations, etc. The second kind is an “entrepreneurial” business, meaning that you’d sell it in a heart-beat if you got a good offer for it and move on to the next business opportunity without looking back. And last, there is the “legacy” business – think company logo emblazoned across a sleek, glass high-rise – whose life far outlives your own personal involvement in the day-to-day running of the business.

Why does this matter? Because what you do this year, this quarter or this month, with your business, should be aligned with your long-term objective. It matters because, depending on which of the three businesses you think you’re running, it will alter what you invest in and how you manage it. Stephen Covey, in his landmark book The Seven Habits of Highly Effective People, identified a key habit: “Begin with the End in Mind.” Understanding what business you’re in is a terrific example of understanding your “end in mind” so that you know how to wisely invest your time and money today.

What are the practical implications of running each of these types of businesses? Lifestyle businesses exist to maximize the cash they generate for the owner. In this scenario investments in the business are minimized, costs are kept low, debt is avoided and the business will be structured to easily dissolve it when the owner no longer needs or wants to run it. Contrast that with an entrepreneurial business where the goal is to maximize the valuation of the business in hope of a sale. To survive a buyer’s due diligence and to command a fair price, the owner has to be able to demonstrate sufficient business structure, processes, standards, a history of solid growth in sales and profits, mastery of customer account management, compliance to legal, regulatory and HR mandates and the existence of a skilled, well-motivated team.

A “legacy” business is concerned with all of the same structural issues as an “entrepreneurial” business, but is also highly committed to succession planning. Who is on the bench and being groomed to take over the reins when the founder is ready to retire? That’s a key decision that has enormous ramifications for the company, employees and customers.

This is why one of the first questions I ask my clients is, “What business are you in?” Their answer dictates their leadership focus and priorities and determines what their time and money is invested in, and why.

What business are you in?

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